The CII J02 March 2024 Exam in Review

Here, we take a look at the exam paper for J02, the exam that sits in the Diploma in Financial Planning and covers trusts – useful for those preparing to sit the next J02 exam.

This article is correct as at 4 June 2024. 

You can find the exam guide here.

Question 1

The exam kicked off with a description of the legal definition of a trust. This was for six marks and would have been a comfortable start for most candidates with the majority of marks obtainable.

Question 2

Next, candidates had to state and describe the four types of beneficial interest under a UK trust, and again, candidates should have picked up most of the marks for absolute, life interest, reversionary and contingent interests.

Question 3

Next, a more technical question was asked: how a trustee of a non-charitable trust can delegate their powers under the Trustee Act 2000 and five powers that cannot be delegated.  This may have been more of a challenge, and only the candidates who had studied the syllabus, in full, would have scored well.

Question 4

This question made up for the technicality of Question 3. Candidates had to explain the benefits of placing a life insurance policy under a discretionary trust for family protection purposes. All J02 students should have done well here.

Question 5

The ease-up didn’t last long though… in this question, candidates had to explain how a trust is established in a Will – for five marks, and in part (b), describe when a trust established in a Will would need to be registered with the Trust Registration Service.  Part (b) was only for three marks and although tested before, will still have proved challenging.

Question 6

Next, came a question on the IHT treatment of a pre-22 March 2006 interest in possession trust when the beneficiary has a transitional serial interest. This was for four marks.

Part (b) asked when a transfer of value would occur for IHT purposes, when the interest in possession changes on a pre-22 March 2006 IIP trust, which is not subject to a TSI. This was for just three marks.  Again, this was a technical question, which may have lost marks for the not-so-well-prepared candidate.

Question 7

Next, there was a question on the taxation of trusts, which started with a mini-case study where we were introduced to Jackson, a higher-rate taxpayer, the beneficiary of an interest in possession trust receiving dividends.  Firstly, candidates had to describe the tax treatment of the income received by the trustees, and secondly, they had to explain how Jackson must report and pay tax on the income.  Overall the question was for 11 marks.  The taxation of trusts is tested in most, if not all, sittings so candidates should have been prepared for this type of question and should have gained some good marks.

Question 8

Next, came a factors question. Candidates had to state the factors the trustees should consider when investing cash held in a bare trust. This was for eight marks.  Factors questions should be answered well as candidates can normally use standard answers such as economic conditions, charges, tax position etc and then some more specific ones relating to a bare trust in this instance so factors such as the parental settlement rules for minors.

Question 9

This question provided another mini case study testing the tax position of a trust. This time, we were introduced to Garrett, a higher-rate taxpayer, who had set up a discretionary trust three years ago and is now considering transferring some existing OEICs into the trust. Candidates had to explain the CGT treatment of this action. This type of disposal has been tested before, so the eight marks on offer should have been mostly available to the well-prepared person.

Question 10

Next, came a question on powers of attorney – another part of the syllabus usually tested in each exam.  This time, candidates had to state the action required for a family where, in this case Monisha, had lost mental capacity with no EPA or LPA in place. This was for just two marks, and candidates simply had to state the Court of protection and deputy to gain those marks.  In part (b), which was for a larger amount of marks, candidates had to explain the drawbacks of the action stated in the answer to part (a).  This is again a standard question within J02, and time, cost, etc should have been answers that came easily to candidates, with some of the others, such as that the deputy will have limited powers and subject to more stringent supervision, perhaps for the more prepared candidate.

Question 11

Testing knowledge of Wills came next.  Candidates had to describe how a mutual Will operates (for five marks) and in part (b) explain the implications if one of the couple had revoked their Will before he died. This was for just three marks. Wills and intestacy are also tested in each sitting, so this should have been part of a well-structured revision plan.

Question 12

Next, a question came on 18 to 25 trusts.  Firstly, a description was required of how such a trust is created.  This was for five marks.  And secondly, the IHT position for the beneficiary. This was for just three marks.

Question 13

This question was another test of the taxation of trusts.  Here, we met Theo, the beneficiary of a discretionary trust set up by his father, who had not created any other trusts. The income received by the trust was interest and dividends, which was distributed to Theo, a basic-rate taxpayer.  Candidates had to calculate the net income payable to Theo for eight marks and then explain how Theo would be taxed on the income received for four marks.  This was the last time the standard rate band could be tested and hopefully, candidates did well in both parts.

Question 14

The penultimate question asked for five benefits and five drawbacks of using a discretionary loan trust for IHT planning.  This would have been a welcome question, as loan trusts have been tested before, and 10 marks would have been a welcome number to increase overall marks.

Question 15

The last question is often on the review of a trust.  This one asked for the actions that could be taken to remove a trustee who is losing mental capacity.  This was for seven marks, and we feel that most candidates would have done well here.

Comparison with the September 2023 Exam Paper

If we look at what was tested in September 2023’s paper, we can see if there has been any overlap. This exam guide can be found here.

The topics covered were:

• Pros and cons of creating a trust
• Replacing trustees
• Pros and cons of appointing a corporate trustee rather than using a family friend
• Pros and cons of transferring a share portfolio into a discretionary trust
• Information that should be included in a trust deed
• Definition of an implied trust; a successive trust; a constructive trust.
• Variation of Trusts Act 1958
• General Powers of Attorney
• Duties of executors
• Role of the trustee in bankruptcy
• Distribution of trust funds by trustees and tax implications
• Relevant life policies
• The Trust Registration Service
• Factors to consider prior to making a transfer of capital into a discretionary trust
• A first trust review

As you can see, with the exception of the TRS, different areas were tested in September last year. This highlights, once more, the importance of using several of the older exam guides to help construct a revision plan that covers all of the J02 syllabus.

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